Beige Book Report: St Louis
June 16, 1976
Business activity in the Eighth Federal Reserve District continues upward, according to reports of area businessmen. Consumer demand remains strong, especially for automobiles and other durable goods. Manufacturing activity, though still somewhat below capacity, is improving. Increased operating ratios for manufacturing firms have so far had little impact on prices. Financial institutions report some increase in interest rates as loan demands inch up. Savings flows into thrift institutions continue to increase but at a more moderate rate than in the first quarter of the year.
Retail sales continued to register overall gains in recent weeks, but department store representatives report that increases in sales have not been as large as expected. Sales increased in May at only about one-half the expected rate of gain. Analysts point out that comparisons with year-ago sales may be biased by the expenditures associated with the tax rebates last year. In addition, the slower rate of growth in department store sales may reflect the rising consumer preference for automobiles and other durable goods. Appliance and automobile sales are reported to have been excellent in recent weeks.
This month's interviews with manufacturing firms were conducted with
special emphasis on current operations as a percent of normal
capacity and the pressures that rising operating levels have had on
prices. In general, firms are reported to be operating somewhat
below normal capacity. Lack of demand is the reason most often given
for this
less-than-capacity level of output. But demand is
continuing to increase and excess capacity is declining. A steel
representative reports current utilization is slightly over 80
percent of capacity. Price increases for steel products, which go
into effect this month, were reported to be necessary to cover
capital costs. A major feed and food processor reported operations
in this sector to be about 70 to 75 percent of capacity, with upward
pressures on prices not expected until at least 90 percent of
capacity is attained. A manufacturer of welding equipment is
operating currently at 90 percent of capacity on some items while at
full capacity on others. A representative of this firm noted that
raw material prices are increasing rapidly and that his firm's
prices will be increased soon. An auto assembly plant in the St.
Louis area has plans to operate at full capacity for the first time
since 1974 by adding a second shift this fall. A manufacturer of
electric motors for appliances also reported operating at virtual
capacity in recent months.
Representatives of a few industries reported a shortage of capacity at the present time, and large price increases for products of these industries are expected. A distributor of hydraulic equipment parts noted that a seller's market has developed for these products. Capacity has not been increased substantially in this industry during the past few years, and rising demands have resulted in order backlogs up to six months. Some products used in the oil and gas industry were also reported to be in short supply, though price increases for these products have so far been moderate. However, increases in basic raw material costs for this industry are expected to contribute to price increases in the near future.
Interest rates are beginning to inch up again, according to reports from area bankers and thrift institution officials. The most prevalent mortgage rate in St. Louis is still 8 1/2 percent on an 80-percent loan, but 8 3/4 percent is becoming increasingly common. One savings and loan representative predicted that 8 3/4 percent would become the dominant rate within another month. The pressure for mortgage rates to rise locally is said to reflect higher-yielding investment opportunities in national markets rather than any sharp upturn in local mortgage demand. Business loan demand at commercial banks has inched up in recent weeks, according to representatives of larger banks. Gains in volume of real estate, consumer installment, and agricultural loans were registered in May. One bank predicted an increase in loan demand through the summer, with an accompanying increase in rates charged.
Statistics for the St. Louis area show no growth of savings deposits at savings and loan associations in April, but reports indicate some increase in May. Reports from other areas also indicate savings deposits continue to make gains but at a reduced rate from earlier in the year. Minor changes in rates offered on deposits at several savings and loan associations were noted in recent weeks. Minimum amounts for long-term certificates at some associations were raised from $1,000 to $10,000 or more, and the rates paid were reduced by one-fourth of one percent. The recent tendency for mortgage rates to rise is expected to forestall further rate reductions on deposits.